The Healthcare Inflation Reduction Act: A Comprehensive Overview
Introduction
The rising cost of healthcare has been a longstanding concern in the United States. It impacts individuals, families, employers, and the overall economy. To address this pressing issue, legislators have proposed various measures, one of which is the Healthcare Inflation Reduction Act (HIRA). In this blog, we will delve into the key aspects of the Healthcare Inflation Reduction Act, its goals, provisions, potential impact, and the challenges it may face.
Understanding the Healthcare Inflation Reduction Act (HIRA)
The Healthcare Inflation Reduction Act was signed into law August 16, 2022, and is a landmark legislation to lower health care costs for millions of Americans, particularly prescription medicines. It is aimed at tackling the relentless inflation in healthcare costs, with a focus on reducing the rate of healthcare cost increases and improving the affordability and accessibility of healthcare services.
Drug Price Regulation
To mitigate the escalating costs of prescription drugs, HIRA includes provisions for the regulation of drug prices. It empowers the government to negotiate drug prices with pharmaceutical companies and set price caps on certain medications. For the first time, the new law allows the Centers for Medicare and Medicaid Services (CMS) to negotiate the price of high-cost drugs with manufacturers. The Congressional Budget Office estimates that this provision alone will save Medicare of $100B over the next 10 years. Negotiating drug prices won’t just benefit those enrolled in Medicare. Although the US does not have a centralized health system, Medicare, with more than 63M beneficiaries, provides a benchmark for many private insurers. Experts expect Medicare’s new negotiating power to provide bargaining power to private insurance plans as well. It is important to note that Medicare’s negotiating power will NOT apply to all drugs on the market. Only the price of the 10 eligible drugs that account for the highest spending under Medicare Part D (pharmacy drugs) will be negotiated in 2026, with an expansion to Part B (drugs administered in a medical setting) an increase to the top 20 highest-spend drugs by 2029.
CMC announced the first 10 Drugs for 2026 last week:
Of note, four of the 10 drugs are for diabetes. Hopefully through value-based care programs, more will be done to address diables through prevention/wellbeing programs. In addition, it should be noted that the only Pharma company hit more than once is Janssen (Johnson & Johnson). Imbruvica- owns 50% with Abbvie, Stelara- Janssen Immunology, Xarelto-Janssen CVM.
CMS issued a fact sheet providing additional detail about the selected drugs and explaining the selection process. According to this fact sheet, they were chosen primarily based on their total gross covered prescription drug costs under Part D between June 2022 and May 2023. These costs ranged from $2.57B for Fiasp to $16.48B for Eliquis.
Penalty for Non-Compliance
Drug manufacturers that do not comply with the Program could be subject to a civil monetary penalty or an excise tax. The excise tax amount on the sale of a selected drug would be set as a percentage of the sum of the drug’s sales price, plus the excise tax imposed by the Act. This percentage could range from 65% to a maximum of 95%, if a manufacturer were out of compliance more than 270 days.
Any drug with an orphan designation is exempt from consideration, preserving incentives for drugmakers to develop drugs for rare disorders. Similarly, plasma-based therapies are exempt from negotiation because their prices reflect fluctuating materials and manufacturing costs, rather than up-front R&D costs.
Capping Medicare Costs
Several other provisions in the new law will also lower drug costs. In 2023, Medicare beneficiaries will no longer pay out of pocket for any recommended adult vaccines. According to the Kaiser Family Foundation, there were 4.1M people enrolled under Part D in 2020.
Medicare will also cap the growth of drug prices beginning in 2023. If manufacturers increase the cost of their drugs faster than the rate of inflation, they will have to pay rebates to Medicare. Again, because Medicare plays a large role in the US healthcare market, this inflation cap is likely to influence what private insurance plans are willing to pay for drugs as well.
The provision with the largest potential impact on individual enrollees is a new cap on out-of-pocket costs for drugs covered under Medicare Part D. By the end of its phased rollout, this cap is expected to directly lower costs for more than 1.4M people enrolled in Medicare. Currently, Medicare out-of-pocket drug costs aren’t capped, but beneficiaries enter a “catastrophic coverage” phase once they have spent $7,500 on Part D medications. Under catastrophic coverage, beneficiaries pay 5% of drug costs out of pocket for the remainder of the year. For 2024, the new legislation drops out-of-pocket costs to $0 when beneficiaries hit Part D catastrophic coverage. And starting in 2025, catastrophic coverage will no longer apply at all since Part D drug costs paid by the patient will be capped at $2,000 per year.
An additional cap that will benefit many patients is the $35/month out-of-pocket cap on insulin for Medicare beneficiaries.
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Medicare Parts B and D Drug Inflation Rebates
The Act requires drug manufacturers to pay annual rebates to Medicare if they increase prices of certain Part D covered drugs above an allowable inflation rate from a 2021 base period (based on the Consumer Price Index, all urban consumers [CPI-U]). The program applies in the 12- month period starting on October 1, 2022, and each subsequent 12-month period. Likewise, beginning in 2023, manufacturers pay a quarterly rebate to Medicare if the prices of most single-source Part B drugs and biological products exceed a quarterly inflation-adjusted price, also based on CPI-U from a 2021 base. ASP is the price that is used to determine inflation rebates for Part B products.
Extending Health Insurance Subsidies
Aside from prescription drug prices, the affordability of health insurance premiums is a concern, especially for those purchasing their own coverage. The Inflation Reduction Act extends important tax credit expansions for those purchasing health insurance through Affordable Care Act marketplaces. The enhanced credits were set to expire at the end of 2022 but will now continue through 2025. The expansion of tax credits for the Affordable Care Act plan was originally put in place by the American Rescue Plan Act of 2021. Subsidies increased for those already eligible for them and were expanded to individuals making more than 400% of the federal poverty line for the first time. The enhanced subsidies ensure that no one purchasing an ACA m id-level silver plan spends more than 8.5% of their income on health insurance premiums.
Other Aspects of the IRA of 2022:
Price Transparency: HIRA mandates increased transparency in healthcare pricing. Providers and facilities would be required to disclose the cost of medical services and procedures, enabling patients to make informed decisions about their healthcare expenses.
Telehealth Expansion: Recognizing the growing importance of telehealth, HIRA encourages the expansion of telehealth services by increasing reimbursement rates for telemedicine visits and improving access to virtual care.
Enhanced Competition: HIRA seeks to promote competition in the healthcare industry by implementing measures to prevent anti-competitive practices, such as hospital mergers that can lead to higher prices.
Value-Based Care: The legislation encourages the adoption of value-based care models that reward healthcare providers for delivering quality care rather than the quantity of services provided. This shift aims to improve the overall quality of care while reducing costs.
Medicaid Expansion: Some versions of HIRA include provisions to expand Medicaid coverage in states that have not yet done so. This would extend healthcare coverage to more low-income individuals and families.
Potential Impacts The Healthcare Inflation Reduction Act has the potential to bring about significant changes in the healthcare landscape:
Cost Savings: Price transparency and drug price regulation could result in cost savings for patients, making healthcare more affordable. Improved Access: Expanding Medicaid and telehealth services could increase access to care, particularly for underserved populations and those in remote areas.
Quality Enhancement: Shifting to value-based care models may lead to better healthcare outcomes, as providers are incentivized to focus on patient wellness and preventive care. Economic Implications: Lower healthcare costs can have positive effects on the economy, as individuals and businesses may have more disposable income.
Challenges and Controversies While the Healthcare Inflation Reduction Act holds promise, it is not without its challenges and controversies:
Political Divide: Healthcare is a politically charged issue, and any comprehensive reform is likely to face partisan divides and lobbying efforts from various interest groups. Implementation Complexities: Enforcing price transparency and drug price regulation will be challenging, and there will likely be resistance from healthcare providers and pharmaceutical companies.
Funding and Budgetary Concerns: Expanding Medicaid and implementing various provisions of HIRA will require substantial funding, which raises budgetary questions and concerns about the potential impact on the national debt.
Unintended Consequences: Any major healthcare reform can have unintended consequences, and it may take years to fully understand the effects of HIRA on the healthcare system.
Conclusion
The Healthcare Inflation Reduction Act represents a significant effort to address the critical issue of rising healthcare costs in the United States. While the law offers potential solutions to improve affordability, accessibility, and quality of care, it also faces considerable challenges and controversies. As healthcare continues to be a top priority for policymakers and the public, the results of the HIRA will be closely watched, and its implications will have a profound impact on the nation's healthcare system and its stakeholders.